The U.S. Small Business Administration announced revisions to procedural guidance governing lender participation and loan processing for the two SBA major loan guarantee programs: 7(a) and 504. The SBA said in a press release that the changes to Standard Operating Procedure 50 10 (5) will make it easier for lenders to use the 7(a) loan guarantee program to refinance an existing line of credit, especially as a part of a complete refinancing of a small business borrower’s debt.
The revision will be cited as SOP 50 10 (5A). It is effective for loans approved on or after March 1, 2009. The current changes are part of the SBA’s stated commitment to update the SOP semiannually. The previous update in August, the first in 10 years, shortened the document from 1,000 pages to 400 pages and converted it to an electronic format with hyperlinks.
For information about the SBA’s programs for small businesses, go to www.sba.gov.
The SBA also said it is reviewing concerns raised regarding its new limits on financing for goodwill. The SBA’s guidance on Feb. 6 had set a maximum of 50% of the loan amount, up to a maximum of $250,000, for SBA-backed loans used to finance the purchase of goodwill. The agency said it will consider loans for larger goodwill amounts on a case-by-case basis until Aug. 31, 2009. Between now and then, the SBA will study the types of transactions involving substantial goodwill and consider a revision of the current policy when the semiannual update of SOP 50 10 is published in September.
“Goodwill” is the difference between what a buyer pays for an existing business and the book or fair market value of the assets of the business. Goodwill is one of the riskiest assets to finance because it typically has no liquidation value in the event of a default. Comments from lenders and business brokers expressed concerns that the new limits would hinder business acquisitions at a time when many newly unemployed individuals are considering purchasing a business.
For more information on the SBA’s loan programs, go to www.sba.gov.